Apple opens door to CFPB supervision

Apple announced that it has partnered with Goldman Sachs and Mastercard to release a credit card built into Apple’s digital wallet app on iPhone. An entrance into the credit card will make Apple a “covered person” under the Consumer Financial Protection Act (CFPA) and it will be required to comply with all applicable disclosure requirements and Fair Credit Reporting Act (FCRA) requirements, among others.

Before introducing the product, Apple has not been subject to regular supervision by the Consumer Financial Protection Bureau (CFPB).

The Apple Card is designed to offer customers a familiar experience with Apple Pay, as well as the ability to manage their card from their iPhone. It also is being promoted as a way to help customers lead healthier financial lives because it shows them data on how they can cut down on paying interest rates and simplifying the application process and other factors associated with credit cards.

“Our goal with apple card is to provide each customer with the lowest interest rate possible in the industry,” Apple Vice President of Apple Pay Jennifer Bailey said, announcing the development of the Apple Card.

“We think Apple is uniquely positioned to make the most significant change in the credit card experience in 50 years,” Apple CEO Tim Cook said near the end of the presentation.

Bailey noted that the card app shows users how they can save on interest by to pay more often and that there are late fees, international fees, overage fees or another other fees associated with the card.

“Apple Card is designed to take advantage of the power of the iPhone. For starters, you don’t have to wait days to get your card; just sign up on your iPhone and in minutes, you can get it on your phone and start using it right away,” Bailey said.

Apple also promises that the new credit card product, which will be available in the U.S. this summer, will offer a “new level of privacy and security” and a “clearer and more compelling rewards program than other credit cards with Daily Cash, which gives back a percentage of every purchase as cash on customers’ Apple Cash card each day.”

“Apple Card builds on the tremendous success of Apple Pay and delivers new experiences only possible with the power of iPhone,” Bailey said in a press release. “Apple Card is designed to help customers lead a healthier financial life, which starts with a better understanding of their spending so they can make smarter choices with their money, transparency to help them understand how much it will cost if they want to pay over time and ways to help them pay down their balance.”

Goldman Sachs and Mastercard have agreed to provide support as the issuing bank and global payments network, respectively. As a newcomer to consumer financial services, Goldman Sachs is creating a different credit card experience centered around the customer, which includes never sharing or selling data to third parties for marketing and advertising.

“Simplicity, transparency and privacy are at the core of our consumer product development philosophy,” Goldman Sachs Chairman and CEO David Solomon said in the release. “We’re thrilled to partner with Apple on Apple Card, which helps customers take control of their financial lives.”

Bailey said Apple chose to work with Goldman Sachs because the company needed a bank that was “willing to do things that were never done in the industry before.”

“We are excited to be the global payments network for Apple Card, providing customers with fast and secure transactions around the world,” Mastercard President and CEO Ajay Banga said.

Apple’s decision to enter the credit card marketplace raises similar regulatory implications to when Square Inc. partnered with Celtic Bank in 2016 to offer online loans.

Square became a covered person under the CFPA because of its affiliation as a payment processor for an entity that provided credit to consumers – Celtic Bank. Because Square Capital provided credit through the Square Installments program, it was considered its own covered person subject to CFPB oversight in addition to its parent company.

The argument over whether a retail merchant could be considered a covered person for providing payment processing services came up in enforcement action against Sprint in January 2015 in which the wireless carrier was accused of allowing consumer protection law violations to take place by giving third-party billing aggregators access to their billing system.

Among the things which could fall under regulatory scrutiny if Apple becomes a covered person are consumer problems such as the company slowing down its phones because the batteries couldn’t handle the system, and being forced to offer battery replacements to consumers who complained. It would be within the CFPB’s purview to look into that matter, or any other that falls within a three-year statute of limitations under the CFPA, to see if there was deceptive behavior in violation of consumer financial protection laws in Apple’s actions that led to the replacement plans.

Other activity the CFPB could look into is a matter Spotify has sued Apple over involving the Apple App Store in the European Union. Spotify has alleged that because Apple forced it to pay more to have its app offer subscriptions, it would have had to raise consumer prices for the convenience of subscribing through the app. Instead, Spotify customers were forced out of the app and into a regular online browser to become subscribers. The subject of App Store pricing and its effects on consumer pricing could fall under CFPB scrutiny once Apple becomes a covered person.

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The Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. have issued information on the host state loan-to-deposit ratios, which are used to determine compliance under Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Review the ratios in Dodd Frank Update’s Library.